San Gabriel Valley Tribune: State auditor says Irwindale is spending ‘beyond its means,’ but hasn’t broken law

A state audit of the small industrial city of Irwindale found no evidence officials broke the law, though auditors did uncover a series of bad practices and excessive spending.

The report released Tuesday suggests the eastern Los Angeles County charter city of about 1,400 has exercised little control over its funds, spending too much on overtime, employees’ benefits and a costly health care program, for which the city spent nearly $500,000 on 25 residents’ prescriptions just last year. State auditors also found issues with the city’s contracting, with many of its contracts exempt from competitive bidding.

City Manager John Davidson said he welcomed the report and would use it as an impetus to make changes “where appropriate,” according to a statement on Irwindale’s website.

“While the city has already initiated many improvements, I pledge to work collectively and aggressively to incorporate the audit recommendations,” Davidson wrote.

He could not be reached for comment.

In a separate response to the auditor’s office, Davidson took on a different tone, repeatedly questioning the state agency’s motivations and claiming auditors overstepped their bounds. Of the auditor’s 11 recommendations, Irwindale disagreed with eight, saying either the auditor was wrong, the city has already made changes or the state agency did not have the authority to make the recommendation in the first place.

WHY THE AUDIT HAPPENED

State Sen. Ed Hernandez requested the audit after numerous allegations of fraud and misuse of publics funds. Though no wrongdoing was found, Hernandez said the audit raised serious questions about how programs are run in the city, including the city’s low-income housing program, which gives preferential treatment to long-time residents and has forgiven nearly $20 million in home loans.

“The audit found the city continues to spend beyond its means and tap into reserves, jeopardizing the future fiscal health of the city and its ability to maintain services for residents. I look forward to working with Irwindale officials to resolve these financial issues and ensure fair, responsible governance,” Hernandez said in a statement.

WHAT IT FOUND

State Auditor Elaine Howle’s office found Irwindale operated in the red by as much as $5 million in its worst year — about of one-third of its total revenue — between 2012 and 2015, and relied heavily on one-off payments from the sales of properties to even out its books.

“Although the city has made limited efforts to control costs, it continues to overspend because it has not developed a long-term financial plan, adjusted some of the benefits it provides to its residents or evaluated its use of police overtime,” the audit states. “The city has also not made certain that it receives the best value for the money it spends on contracts or revised its purchasing policy so that staff document that all costs for all types of city contracts are reasonable.”

Davidson said the city expects positive operating revenues next year and has about 97 percent of the funds necessary in its rainy day account.

Many of the programs and policies the auditor took issue with benefitted city employees or a select few of the city’s residents. Perhaps the most beneficial was a program helping low-income families buy their first homes.

Irwindale’s Housing Authority has forgiven $19.3 million in home loans since 1995, with both interest and the principal waived after 20 years of no payments, the audit reported. Residents are selected for the city’s housing programs through a system that favors existing residents over individuals outside the city.

Again, Irwindale brushed off a recommendation to change the systems to be more fair, instead saying the city’s policy does not violate the law.

The audit found the city spends a significant chunk of the revenue from seven active pit mines on helping residents deal with potential health effects. The city offers vision and prescription benefits to qualified residents, but in many cases, the city spent the bulk on only a few of the 251 residents who participate. Of the $900,000 spend on prescriptions in 2015-16, a little less than $500,000 was spent on 25 residents. Residents pay as little as $3 for their co-pays, with the city covering an unlimited amount of the remainder.

The audit, which found no evidence the city documented any health effects, recommended capping the amount of a benefit a resident can obtain in a year. The city responded in a letter by saying the benefits are a policy decision that is “not one for the CSA to make, let alone espouse its opinion.”

In another recommendation, the auditor suggested rotational shifts for police overtime after finding a handful of senior officers used up most of the overtime, in some cases doubling their salaries for the year. The officer with the most overtime worked an additional 946 hours of overtime per year, or the equivalent of 76 extra 12.5 hour days, the report noted. The audit also suggested hiring more officers, or contracting with the sheriff’s department.

Irwindale called the extra time “within safe levels” and said the claim that the shifts were excessive is “unsupported,” according to its response to the auditor’s office.

The city did agree to three recommendations without dispute, including developing a debt management plan and creating a fraud prevention policy, which did not exist despite the city getting swindled out of $30,000 from a check scheme in 2013.